The state’s ambitious plan to shake up how providers are paid could have a hidden price for patients: Controlling Massachusetts’ soaring medical costs, many health care leaders believe, may require residents to give up their nearly unlimited freedom to go to any hospital and specialist they want.

Efforts to keep patients in a defined provider network, or direct them to lower-cost hospitals could be unpopular, especially in a state where more than 40 percent of hospital care is provided in expensive academic medical centers and where many insurance policies allow patients access to large numbers of providers….

A state commission recommended in July that insurers largely scrap the current fee-for-service system – in which insurers pay doctors, hospitals, and other providers a negotiated fee for each procedure and visit – and instead pay providers a per-patient annual fee to cover all of the patient’s medical care.

Where do I begin with this one? It is absolutely no wonder to one who knows human nature that, when there is no perceived difference in personal cost between one option and the next, one will seek out the most-expensive options in the belief that it is the best.

The whole reason HMOs, which are defined provider networks, have been reviled is that they do limit access to where one gets health-care treatment. As the article notes, with the average resident of Massachusetts having freedom of movement, reinstituting an HMO-style limitation on where one can get health care is going to go over like a lead balloon.

Yet even that limit isn’t the only item being talked about. The proposed “solution” to the problem of too much money going out the door for health care, a hard cap on how much will be paid for all health care for a particular patient, is even worse. What happens when the cost of the next medically-necessary procedure, even if it’s done in a third-rate care clinic, busts that cap (after all, several things can happen in a compressed timeframe)? The Professor’s close is a good one – “Think of them as ‘life’ panels, because they’ll decide if you get to live!”

A third idea is limiting the amount of money the “expensive” teaching hospitals get for procedures. I’ll let Ed handle the bulk of that argument:

The result of that approach will be very easy to predict. The best hospitals will take primarily those patients who can afford to pay their premium prices, leaving the poor and middle-class patients to get treated elsewhere. It will stratify health care much more than before Massachusetts enacted its “reforms”, giving the rich almost exclusive access to the best care. And thanks to lousy compensation rates, fewer new providers will be around to meet the new demand in second-tier care, meaning much longer wait times for the poor and middle-class patients.

There is another bad side effect of limiting payments to teaching hospitals; they will either have to charge even more for tuition to the student-doctors, or they will have to accept fewer student-doctors. In either case, that will reduce the future availability of health care.

First, the Baucus bill would substantially increase the costs of coverage, for example by requiring rich benefits packages and coverage for Americans with pre-existing conditions at far less than their actual expense. At some point, employers will decide that the appeal of offering insurance as a tool for recruiting and retaining employees no longer compensates for its soaring cost.

Second, the bill is based on perverse incentives that no one is even discussing. The subsidies it offers to citizens are so rich that if companies were to drop their plans, the majority of workers would get the same lavish coverage, and extra cash in their paychecks to boot. “Those two factors will change the equilibrium,” says (Cato Institute economist Michael) Tanner. “With the government providing huge credits, employers will feel a lot less guilty about dumping their plans.”

In fact, the Baucus bill is practically inviting employers to do just that: It imposes a fine of just $400 per employee on companies that shed their plans.

You may say, “So what?” Tully goes on to explain that a wholesale exit by employers from the health insurance market will by necessity blow the CBO deficit projections of the Baucus versoin of PlaceboCare up because it assumes that the level of employer-provided health insurance will remain constant. The math is too long to excerpt, but suffice it to say that as the number of employees kicked to the “self”-funded and (in many cases, taxpayer-subsidized) exchange curb grows, so does the gap between the cost of subsidizing the coverage of those employees and the additional taxes taken in.